Financing the Green transition
Wednesday 05 May 2021
Green finance has been growing with a focus on harvesting activities that are already green, such as wind farms and photovoltaic parks. To shift towards the Paris Agreement trajectory, the industry needs to finance the green transformation of the high-carbon sectors, such as steel, aluminum, cement, and natural gas.
The ambition to mitigate climate change, as outlined in the 2015 Paris Agreement, entails the decarbonisation of entire societies and economies globally by year 2050. The agreed to objective is to keep the rise of global temperature below 2°C and to pursue efforts to limit it even further to 1.5°C.
The EU Action Plan on Financing Sustainable Growth considers finance a critical enabler of transformative improvements.
Antonio Keglevich, Head of Sustainable Advisory, UniCredit said: “While green finance has experienced tremendous growth since its onset in 2007, focusing on activities that are already green, it is now time to broaden perspective to encompass financing activities in hard-to-abate emission businesses”.
The OECD estimates that EUR 6.35tr/year are required to meet mitigation goals by 2030 alone and that the public sector resources will not be adequate to meet this challenge.
To help facilitate the flow of investment to the climate transition process, the International Capital Markets Association (ICMA) published the first guidance for issuers, called the “Climate Transition Finance Handbook” in December 2020. The handbook does not provide definitions of transition projects, but it clarifies the issuer-level disclosures that are recommended to credibly position the issuance to finance the transition.
A framework published by the Climate Bonds Initiative provides an additional view on how to identify credible Paris-aligned transitions. The so-called “White paper” defines five principles requiring that all goals and pathways need to be aligned with the 1.5°C trajectory and be established by science.
In this scenario, UniCredit is committed to playing an important role in financing European corporates’ transition to a low carbon economy, ranking among the 5 most active banks in Europe to support customers’ access to ESG-linked loans and bonds in 2020 with around 15,5 bn EUR raised.
We continue this journey and this year, as an example, UniCredit has acted as joint sustainability coordinator, bookrunner and mandate lead arranger supporting Trafigura, a market leader in the global commodities industry, with its first sustainability-linked loan structure issuance for an amount of USD 5.5 bn.
This transaction further incorporated specific parameters designed to incentivise the company to meet targets related to the reduction of greenhouse gas emissions, responsible sourcing of metals and growing their renewable power portfolio.
UniCredit Research expects a further growth in the global issuance of green, social, sustainability and sustainability-linked bonds this year, to an all-time high of USD 650bn in 2021.
We continue our mission of being part of the solution, supporting our clients and communities in all the markets where we operate in the transition to a more sustainable global economy.